A RISING share price is not the kind of response a regulator likes to see when he has just given it to the company he regulates with both barrels.

Tom Winsor, the new Rail Regulator, may have thought his rottweiler job on Railtrack's ankles yesterday would put the skids under it. But the City blinked and decided the watchdog's bark was worse than his bite.

That looks like a perverse reaction given that Railtrack faces an uphill task meeting the performance targets set for it.

Last year it reduced train delays attributable to it by just 2 per cent. By next April it has to have achieved a further 13 per cent reduction or start paying fines on a sliding scale of up to pounds 40m which is about a tenth of its profits.

If Railtrack can sustain its first quarter performance, then the penalties are unlikely to be anywhere near that severe but since Railtrack itself concedes that the new target represents a huge hurdle, some financial pain looks inevitable.

Mr Winsor knows all about the penalties for poor performance, having written the legislation under which Railtrack was privatised in his previous incarnation as a senior partner with Denton Hall.

Of course, when the Tories were Mr Winsor's masters and the railways were sold off nobody thought that they would prove as popular as they have. The consequence is that Railtrack has the unenviable task of reducing delays at a time when rail travel has grown by 25 per cent.

Mr Winsor will doubtless argue that Railtrack should have invested more heavily in extra capacity to meet that demand so that reliability did not begin to crumble.

Behind the sound bites, however, the signs are that the regulator appreciates as much as anyone that there must be carrots as well as big sticks.

That must ultimately mean giving Railtrack greater opportunities to share in the upside of a railway renaissance.

In the short-term, however, the markets may be underestimating the pain John Prescott's trained rottweiler will inflict.